Environmental Sustainability

The ecological challenge facing all organizations requires managers to formulate strategies that preserve and conserve natural resources and control pollution. Special natural environment issues include ozone depletion, global warming, depletion of rain forests, destruction of animal habitats, protecting endangered species, developing biodegradable products and packages, waste management, clean air, clean water, erosion, destruction of natural resources, and pollution con­trol. Firms increasingly are developing green product lines that are biodegradable or are made from recycled products. Green products sell well. Managing the health of the planet requires an understanding of how international trade, competitiveness, and global resources are connected. Managing environmental affairs, for example, can no longer be simply a technical function per­formed by specialists in a firm; more emphasis must be placed on developing an environmental perspective among all employees and managers of the firm.

Businesses must not exploit and decimate the natural environment. Mark Starik at George Washington University believes, “Halting and reversing worldwide ecological destruction and deterioration is a strategic issue that needs immediate and substantive attention by all businesses and managers.” According to the International Standards Organization, the word environment is defined as “surroundings in which an organization operates, including air, water, land, natural resources, flora, fauna, humans, and their interrelation.” This chapter illustrates how many firms are gaining competitive advantage by being good stewards of the natural environment.

Employees, consumers, governments, and societies are especially resentful of firms that harm rather than protect the natural environment. conversely, people today are especially appre­ciative of firms that conduct operations in a way that mends, conserves, and preserves the natural environment. consumer interest in businesses preserving nature’s ecological balance and foster­ing a clean, healthy environment is high.

1. What Firms Are the Best Stewards?

Lennar Corporation, the nation’s second-largest homebuilder, now offers solar panels as stan­dard equipment on thousands of its new homes, especially in the southwestern United States. Homeowners can either lease the solar panels from Lennar or purchase the panels outright. Even with oil and gas prices at decade lows, solar panels have become quite cost effective, and “exhumes good ethics rather than bad fumes.” Walmart is installing solar panels on its stores in California and Hawaii, providing as much as 30 percent of the power in some stores. It may go national with solar power if this test works well. Also moving to solar energy is department-store chain Kohl’s Corp., which is converting 64 of its 80 California stores to use solar power. There are big subsidies for solar installations in some states.

In October of every year, three world-renowned corporate sustainability rankings are pub­lished: (1) the Dow Jones Sustainability Index (DJSI), (2) the Carbon Disclosure Project, and (3) Newsweek’s “Green” rankings. The DJSI annually reveals the best corporations in the world in various industries in terms of sustainability. Note in Table 10-3 that Sodexo, for example, leads all “consumer services” companies in “environmental sustainability”; consumer services includes providing food services in the cafeteria at many colleges and universities.

The strategies of both companies and countries are increasingly scrutinized and evaluated from a natural environment perspective. companies (e.g., Walmart) now monitor not only the price their vendors offer for products but also how those products are made in terms of environ­mental practices, as well as safety and infrastructure soundness—particularly of Southeast Asia factories. a growing number of business schools offer separate courses and even a concentration in environmental management.

In terms of megawatts of wind power generated by various states in the nation, Texas’s 8,000 megawatts dwarfs all other states. Minnesota also is making substantial progress in wind power generation. New Jersey recently outfitted 200,000 utility poles with solar panels. A Wall Street Journal (6-29-15, p. Bl) article says Hawaii leads all states in the most electricity per capita (21%) generated from solar or wind. A new Hawaii mandates that 100 percent of the state’s electricity be supplied by wind turbines and solar panels by 2045. States that get the most electricity per capita from residential solar panels are Hawaii 168 watts per capita, followed by California at 47, Arizona at 44, and New Jersey at 25.

2. Sustainability Reports

A sustainability report reveals how a firm’s operations impact the natural environment. This document discloses to shareholders information about the firm’s labor practices, product sourc­ing, energy efficiency, environmental impact, and business ethics practices.

No business wants a reputation as being a polluter. A bad sustainability record will hurt the firm in the market, jeopardize its standing in the community, and invite scrutiny by regulators, investors, and environmentalists. Governments increasingly require businesses to behave respon­sibly and require, for example, that businesses publicly report the pollutants and wastes their facilities produce. It is simply good business for any business to provide a sustainability report annually to the public.

With 60,000 suppliers and more than $350 billion in annual sales, Walmart works with its suppliers to make sure they provide such reports. Many firms use the Walmart sustainability report as a benchmark guideline, and model to follow in preparing their own report. Walmart encour­ages and expects its 1.35 million U.S. employees to adopt what it calls Personal Sustainability projects, which include such measures as organizing weight-loss or smoking-cessation support groups, biking to work, or starting recycling programs. Employee wellness can be a part of sus­tainability. Home Depot, the world’s second-largest retailer behind Walmart, recently more than doubled its offering of environmentally friendly products such as all-natural insect repellent. Home Depot has made it much easier for consumers to find its organic products by using special labels similar to Timberland’s (the outdoor company) Green Index tags.

The Global Reporting Initiative recently issued a set of detailed reporting guidelines specify­ing what information should go into sustainability reports. The proxy advisory firm Institutional Shareholder Services reports that an increasing number of shareholder groups are pushing firms to provide sustainability information annually. Two companies that released sustainability reports for the first time were Hyatt Hotels & Resorts and Las Vegas Sands Corporation. Rival firm Hilton Worldwide does not have a stand-alone sustainability report, but Marriott and Wyndham Worldwide do release annual sustainability reports and report excellent reductions in energy, water, waste, and carbon dioxide emissions.

Managers and employees of firms must be careful not to become scapegoats blamed for company environmental wrongdoings. Harming the natural environment can be unethical, illegal, and costly. When organizations today face criminal charges for polluting the environ­ment, they increasingly turn on their managers and employees to win leniency. Employee firings and demotions are becoming common in pollution-related legal suits. Managers were fired at Darling International, Inc., and Niagara Mohawk Power Corporation for being indi­rectly responsible for their firms polluting water. Managers and employees today must be careful not to ignore, conceal, or disregard a pollution problem, or they may find themselves personally liable.

A few years ago, firms could get away with placing “green” terminology on their products and labels, using such terms as organic, green, safe, earth-friendly, nontoxic, or natural because there were no legal or generally accepted definitions. Today, however, these terms carry much more spe­cific connotations and expectations. Uniform standards defining environmentally responsible com­pany actions are rapidly being incorporated into the legal landscape. It has become more and more difficult for firms to make “green” claims when their actions are not substantive, comprehensive, or even true. Lack of standards once made consumers cynical about corporate environmental claims, but those claims today are increasingly being challenged in courts. According to Joel Makower, “one of the main reasons to truly become a green firm is for your employees. they’re the first group that needs assurance than any claims you make hold water.”¹²

Around the world, political and corporate leaders now realize that the “business green” topic is not going away and in fact is gaining ground rapidly. Strategically, companies more than ever must demonstrate to their customers and stakeholders that their green efforts are substantive and set the firm apart from competitors. A firm’s social performance (facts and figures) must back up their rhetoric and be consistent with sustainability standards.

3. The Office of Environmental Affairs

Many companies are moving environmental affairs from the staff side of the organization to the line side, thus making the corporate environmental group report directly to the chief operating officer. Firms that manage environmental affairs will enhance relations with consumers, regu­lators, vendors, and other industry players, substantially improving their prospects of success. Environmental strategies could include developing or acquiring green businesses, divesting or altering environment-damaging businesses, striving to become a low-cost producer through waste minimization and energy conservation, and pursuing a differentiation strategy through green- product features. In addition, firms could include an environmental representative on their board of directors, conduct regular environmental audits, implement bonuses for favorable environmen­tal results, become involved in environmental issues and programs, incorporate environmental values in mission statements, establish environmentally oriented objectives, acquire environmen­tal skills, and provide environmental training programs for company employees and managers.

Preserving the environment should be a permanent part of doing business, for the following reasons:

1. Consumer demand for environmentally safe products and packages is high.
2. Public opinion demanding that firms conduct business in ways that preserve the natural environment is strong.
3. Environmental advocacy groups now have more than 20 million Americans as members.
4. Federal and state environmental regulations are changing rapidly and becoming more complex.
5. More lenders are examining the environmental liabilities of businesses seeking loans.
6. Many consumers, suppliers, distributors, and investors shun doing business with environ­mentally weak firms.
7. Liability suits and fines against firms having environmental problems are on the rise.

More firms are becoming environmentally proactive—doing more than the bare minimum to develop and implement strategies that preserve the environment. The old undesirable alterna­tive of being environmentally reactive—changing practices only when forced to do so by law or consumer pressure—more often today leads to high clean-up costs, liability suits, reduced market share, reduced customer loyalty, and higher medical costs. In contrast, a proactive policy views environmental pressures as opportunities and includes such actions as developing green products and packages, conserving energy, reducing waste, recycling, and creating a corporate culture that is environmentally sensitive.

4. ISO 14000/14001 Certification

Based in Geneva, Switzerland, the International Organization for Standardization (ISO) is a net­work of the national standards institutes of 147 countries, with one member per country. The ISO is the world’s largest developer of sustainability standards. Widely accepted all over the world, ISO standards are voluntary because it has no legal authority to enforce their implementation; the organization itself does not regulate or legislate. Governmental agencies in various countries, such as the Environmental Protection Agency (EPA) in the United States, have adopted ISO standards as part of their regulatory framework, and the standards are the basis of much legislation. adoptions are sovereign decisions by the regulatory authorities, governments, or companies concerned. Businesses and municipalities should consider becoming ISo certified to help attract business.

ISO 14000 refers to a series of voluntary standards in the environmental field. The ISo 14000 family of standards concerns the extent to which a firm minimizes harmful effects on the environment caused by its activities and continually monitors and improves its own environmen­tal performance. These standards have been adopted by thousands of firms and municipalities worldwide to certify to their constituencies that they are conducting business in an environmen­tally friendly manner; these standards offer a universal technical benchmark for environmental compliance that more and more firms are requiring not only of themselves but also of their sup­pliers and distributors. included in the ISo 14000 series are the ISo 14001 standards in fields such as environmental auditing, environmental performance evaluation, environmental labeling, and life-cycle assessment.

ISO 14001 is a set of standards adopted by thousands of firms worldwide to certify to their constituencies that they are conducting business in an environmentally friendly manner. The ISo 14001 standard offers a universal technical standard for environmental compliance that more and more firms are requiring not only of themselves but also of their suppliers and distributors.

According to the ISo 14001 standard, a community or organization is required to put in place and implement a series of practices and procedures that, when taken together, result in an environmental management system (EMS). the ISo 14001 is not a technical standard and as such does not in any way replace technical requirements embodied in statutes or regulations. It also does not set prescribed standards of performance for organizations. Not being certified with ISo 14001 can be a strategic disadvantage for towns, counties, and companies because people today expect organizations to minimize or, even better, to eliminate environmental harm they cause.¹³ there are six major requirements of an EMS under ISo 14001:

1. Show commitments to prevention of pollution, continual improvement in overall environmental performance, and compliance with all applicable statutory and regulatory requirements.
2. Identify all aspects of the organization’s activities, products, and services that could have a significant impact on the environment, including those that are not regulated.
3. Set performance objectives and targets for the management system that link back to three policies: (a) prevention of pollution, (b) continual improvement, and (c) compliance.
4. Meet environmental objectives that include training employees, establishing work instruc­tions and practices, and establishing the actual metrics by which the objectives and targets will be measured.
5. Conduct an audit operation of the EMS.
6. Take corrective actions when deviations from the EMS occur.

Source: David Fred, David Forest (2016), Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Pearson (16th Edition).